Nigeria’s foreign exchange (FX) reserves have decreased by approximately $1.02 billion over an 18-day period as the Central Bank of Nigeria (CBN) intensifies its efforts to support the naira.
As of April 4, 2024, the FX reserves stood at $33.43 billion, down from $34.45 billion recorded on March 18, 2024, based on the latest data from the CBN.
This decline marks a significant reversal from the previous trend of steady accumulation. Between February 5 and March 18, 2024, the reserves experienced a 43-day surge, increasing by $1.28 billion. Factors contributing to this growth included heightened remittance payments from Nigerians abroad, increased foreign investor interest in local assets, reforms in the foreign exchange market, and a rise in oil production.
However, since reaching their peak on March 18, the reserves have been on a downward trajectory. By April 4, they had fallen to $33.43 billion, reflecting a depletion of $1.02 billion within the 18 days. This decline underscores the pressure on the reserves amidst ongoing efforts to stabilize the local currency.
The CBN’s interventions in the foreign exchange market, aimed at bolstering the naira, have likely contributed to the reduction in FX reserves. These interventions involve the sale of dollars to ensure liquidity in the market. Notably, during the period under review, the CBN cleared the valid foreign exchange backlog and provided $10,000 in foreign exchange to each Bureau De Change operator in Nigeria at a rate of N1,251/$1.
The depletion of FX reserves raises concerns about Nigeria’s balance of payments and ability to meet international obligations. A significant decline in reserves could erode investor confidence, potentially leading to a credit rating downgrade and impacting borrowing costs. Additionally, oil and gas sector challenges, theft, and losses further strain the country’s FX reserves.
Looking ahead, policymakers must balance immediate currency stabilization efforts and long-term economic strategies to safeguard Nigeria’s financial stability on the global stage. The IMF projects a challenging period for Nigeria’s financial account in the coming years but anticipates a gradual recovery in FX reserves by 2028, contingent on various factors, including portfolio inflows.
